CFPB News: Enforcement Updates, New Interpretive Rule and Well-Being Report

Financial Services Law

In recent Consumer Financial Protection Bureau (CFPB) news, the CFPB notched a $59 million victory in Wisconsin federal court, settled an enforcement action on employment background screening and published an interpretive rule easing the requirements for a temporary loan originator license.

The CFPB also issued a report with state-by-state comparisons of financial well-being and told the Supreme Court that the Court’s stance on the constitutionality of the CFPB should have no impact on the CFPB’s enforcement activity.

What happened

Highlights of recent activity at the CFPB include:

Court enters $59 million order. The lawsuit dates back to 2014, when the CFPB, Federal Trade Commission (FTC) and 15 state regulators filed dozens of lawsuits against foreclosure relief companies for violations of Regulation O, formerly known as the Mortgage Assistance Relief Services (MARS) Rule.

In the Wisconsin case, the CFPB sued two former mortgage relief services providers and their principals for misrepresenting their services to consumers in a number of respects, failing to make required disclosures and illegally collecting advance fees. The district court granted partial summary judgment in favor of the CFPB in 2016 and, following a bench trial, entered judgment against all six defendants, leaving only the issue of relief.

U.S. District Court Judge William M. Conley didn’t hold back, ordering a total of more than $38 million in civil penalties against the defendants, along with upwards of $21 million in restitution, based on the defendants’ net revenues.

Judge Conley rejected the defendants’ attempt to reduce the restitution amount to account for the benefits that some consumers may have received from their services in the form of mortgage modifications. The Consumer Financial Protection Act (CFPA) expressly allows for disgorgement, the court said, which turns not on the benefit obtained by the defendants but rather on the amount they wrongfully took.

The total: $21,709,021.78.

To determine the civil penalties, Judge Conley considered the number of violations committed by the defendants, the duration of the violations and any mitigating factors, including the history of previous violations. Noting the “egregious” and “calculated” nature of the violations—and in the case of three of the individuals, a “long (and somewhat notorious)” past history with state regulators—the court decided that two of the defendants should pay 20 percent of the maximum penalty, two should pay 15 percent and the final two should pay just 5 percent, totaling $37,294,250.

The court also entered a permanent injunction against the corporate entities and three of the principals, with a five-year injunction against the remaining individuals. “Considering the totality of the circumstances … the court finds that there is a reasonable likelihood that each and every defendant may commit similar violations of the statute in the future,” Judge Conley wrote.

Settlement announced. The CFPB also announced a settlement of its concurrently filed enforcement action against a company that performs background screening of job applicants. The proposed stipulated judgment will require the company to pay $6 million in monetary relief to consumers and a civil money penalty and prohibit the company from engaging in the allegedly illegal conduct again.

The settlement will resolve a complaint concurrently filed in the U.S. District Court, Southern District of New York, alleging that the company failed to ensure the maximum possible accuracy of the information it included in the consumer reports it prepared, creating a heightened risk that its consumer reports would, for example, include criminal records that belonged to another individual with the same name as the applicant, reflected criminal history outside the allowable historical period, or improperly characterized a home address as one where there was “high risk.” 

Financial well-being report. Using public data from the Financial Industry Regulatory Authority Investor Education Foundation’s 2018 National Financial Capability survey, the CFPB analyzed the financial well-being of adults ages 18 and older across the United States.

The report features state-by-state comparisons with a range of average financial well-being scores, from a low of 50 in Mississippi to a high of 54 in California, Hawaii and Washington, D.C. The average financial well-being score in the United States was 52, the CPFB found.

Scores are standardized numbers between 0 and 100 that quantify a person’s underlying level of financial well-being, defined as “the state wherein an individual has a sense of: control over day-to-day and month-to-month finances; capacity to absorb a financial shock; being on track to meet financial goals; and the ability to make financial choices to enjoy life.”

The report also highlighted financial well-being variances by age groups. The average score for those ages 18 to 61 was 49, with a jump to an average score of 62 for those ages 62 and older.

“This analysis of financial well-being scores by state provides an important starting point for understanding how local economic factors can affect people’s financial lives,” the CFPB concluded.

Constitutionality shouldn’t impact enforcement. In the event the Supreme Court declares the CFPB’s structure unconstitutional, will the decision impact the CPFB’s enforcement actions? Nope, the CFPB told the justices in a November 6 brief.

All American Check Cashing filed a petition for writ of certiorari with the Court after the U.S. Court of Appeals, Fifth Circuit, affirmed denial of All American’s motion to dismiss the case, arguing that the structure of the CFPB is unconstitutional.

Encouraging the justices to deny the writ, the CFPB argued not only that review was unwarranted, but also that All American’s argument that the unconstitutional structure compelled dismissal of the CFPB enforcement action was “not an appropriate remedy.”

Neither the district court in the case nor any court of appeals has addressed that question in any depth, the CFPB told the Court, meaning no circuit split exists and there is a dearth of lower court case law to consider.

Further, the issue was particularly problematic given the posture of the case, which was filed under the leadership of the first director but ratified and pursued by an official who was “properly accountable to the President,” acting Director Mick Mulvaney, the CFPB said.

Interpretive rule for loan originator licensees. In a new interpretive rule, the CFPB eased the requirements for mortgage loan originators with temporary authority. Generally, if a mortgage loan originator organization employs an individual originator who is not licensed and is not required to be licensed, Regulation Z mandates that the organization perform specific screening of the individual before he or she can act as a loan originator (as well as provide certain ongoing training).

But Regulation Z is ambiguous as to whether these requirements apply to loan originator organizations employing individual loan originators who have temporary authority to originate loans pursuant to the Economic Growth, Regulatory Relief and Consumer Protection Act (EGRRCPA) amendments to the Secure and Fair Enforcement for Mortgage Licensing Act (SAFE).

Loan originators with temporary authority are those who were previously registered or licensed, are employed by a state-licensed mortgage company, are applying for a new state loan originator license, and meet other criteria specified in EGRRCPA.

Interpreting the requirements not to apply to these temporary loan originators is consistent with Congress’s objectives, the CFPB said, which were aimed at permitting individuals to act as a loan originator in a new state “with minimal burden and delay.”

“This purpose is evident in the amendment’s authorizing eligible loan originators to commence acting as a loan originator upon submitting certain application information,” and in the title of the relevant EGRRCPA section, “Eliminating Barriers to Jobs for Loan Originators,” the CFPB explained.

The interpretation also accords with the CFPB’s objectives in imposing the screening and training requirements on the states, as part of its review of the individual’s application for a state loan originator license. Adding an additional level of training requirement upon the loan originator organization would be a duplication of effort inconsistent with the CFPB’s purpose in issuing the statutory training requirements.

“This interpretive rule concludes that a loan originator organization is not required to comply with certain screening and training requirements under Regulation Z if the individual loan originator employee is authorized to act as a loan originator pursuant to the temporary authority described in the SAFE Act,” the CFPB said.

The interpretive rule took effect on November 24, 2019.

To read the Wisconsin court’s opinion and order, click here.

To view the proposed background screening enforcement action settlement, click here.

To read the well-being report, click here.

To read the CFPB’s brief to the Supreme Court, click here.

To read the interpretive rule, click here.

Why it matters

The CFPB remains active. The $6 million paid by a background screening company is a significant payment to resolve the allegations at issue in the New York action. The CFPB’s $59 million victory in district court is more of a joint effort, shared with other regulators. The CFPB under Director Kathy Kraninger continues to take a moderate approach of providing relief to industry but continuing enforcement actions where such actions appear warranted.

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